Robo-Advisors and Mattress Companies
January 02, 2019
Submitted by Krista McBeath, McBeath Financial Group
Mattress Firm filed for bankruptcy and the country’s largest mattress chain — with over 3,400 stores nationwide — said that as many as 700 stores will be closed by the end of 2018. With sales of more than $3 billion, Mattress Firm has over $1 billion in liabilities and more than 5,500 creditors, although the company said it plans to keep operating and pay its suppliers.
While this might not at first appear to be related to the financial services industry, the glut of mattress companies — especially online mattress companies — could be a harbinger of things to come for financial planners. Let’s compare.
Why so many mattress companies?
No one really knows how many mattress companies exist today, but it sure seems like a lot. Some estimates peg the number at close to 500, due to the rise in online mattress companies. The reasons for so many startups? It’s because it’s easy to start a mattress company.
Traditionally, mattresses were sold by mom-and-pop stores, department stores, and then the chains like Mattress Firm. With very high profit margins — a mattress costs about $250 to make — stores popped up everywhere in this $15-billion-a-year industry. Then, selling mattresses moved online, where the only thing a budding entrepreneur needed was a website and a manufacturer. With plenty of manufacturers, one just slapped their name on a mattress and let the manufacturer worry about making and shipping the mattresses. So, these weren’t really mattress companies, they were digital marketing companies, right?
The growth of robo-advisors
According to Investopedia, “Robo-advisors are digital platforms that provide automated, algorithm-driven financial planning services with little to no human supervision. A typical robo-advisor collects information from clients about their financial situation and future goals through an online survey, and then uses the data to offer advice or automatically invest client assets.”
Today, there are about 100 robo-advisors in the United States. By comparison, there are about 35,000 SEC Registered Investment Advisor firms and over 200,000 financial planners, according to the United States Department of Labor.
Similarities between the two
The similarities between mattress companies and robo-advisors are interesting. For example:
- Both are online and hope to drive down costs for consumers.
- Both appeal to younger generations, who are more comfortable — in theory — with large transactional purchases online.
- Both have small market shares but are expected to grow:
Implications for investors
- Online purchases of mattresses currently comprise about 5 percent of the $15 billion market, and this market share is
expected to double in 2019.
- Robo-advisors manage about $60 billion of the global $80 trillion under management, and this is expected to hit $20 trillion by the year 2020.
Unfortunately, several robo-advisors have closed their doors and that is usually not good news for their clients.
- New York-based Hedgeable, which was one of the first robos and launched in 2010, is gone.
- WorthFM, which focused on women investors, didn’t survive.
- FutureAdvisor was sold to Blackrock.
- LearnVest was sold for $250 million to Northwestern Mutual — then it was closed.
- Women-focused SheCapital closed a year after it launched.
Remember when the media touted Google’s Compare service — which was actually named Google Advisor at one time — as being the most disruptive change that the financial advisory world would witness? The new Google Robo-Advisor? Well, it was shut down, because Google decided that while investors are gathering information online, they weren’t necessarily buying financial advice online.
Ask yourself these questions
If you buy a mattress online from a company that just got into the mattress business five months ago by essentially building a website and buying some Google AdWords, who do you call if they decide to exit the business?
Worse, if your robo-advisor goes out of business, who do you call?
Granted these are hyperbolic, if not somewhat cynical, questions to think about. The likelihood for both online mattress companies and robo-advisors is that they each will appeal to a certain type of client and they will each continue to make their respective industries better for consumers, but you should think about what your needs, aspirations, and long-term plans entail. Then decide which is better for you and your family.
Krista McBeath is an investment advisor, chartered financial consultant, a licensed insurance advisor, a fiduciary, and an experienced tax advisor who specializes in financial planning, investments, and insurance. McBeath Financial Group’s Technology Empowered Advisor Method (TEAM) is a financial planning process that integrates the personal touch of a relationship-based advisor with high-tech software tools to assess a client’s current portfolio and then analyze options from a variety of financial vehicles. Phone 309-808-2224 or email firstname.lastname@example.org for appointment information.
Advisory services are offered through McBeath Financial Group and Motiv8 Investments, LLC. McBeath Financial Group and Motiv8 Investments, LLC are not affiliated. Insurance products and services are offered through McBeath Tax and Financial Services, LLC. McBeath Financial Group and McBeath Tax and Financial Services, LLC. are affiliated.
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